After Historic Fall, Record Growth As Rebound Loses Steam

- UK experienced largest quarterly expansion on record

- Growth momentum eased through the quarter

- UK still 9.7% below pre-pandemic levels

- Vaccine news, extended government support offer hope for 2021


By Harry Daniels

Editor-in-Chief, LiveSquawk News

@ HarryDaniels71


12 November 2020 / 11.00 GMT


London (LS NEWS) – GDP growth in the UK showed its best quarterly rise on record as the economy rebounded following the end of the severest Covid-19 restrictions earlier this year, but the good news was tempered by monthly data indicating the recovery is tapering off.


The Office for National Statistics said it estimates UK economic activity grew at a record 15.5% pace in the third quarter versus the previous three-month period, when growth suffered during the country’s first lockdown. The print fell just short of expectations of a 15.8% rise followed the second quarter’s 19.8% contraction. But GDP remained 9.7% below where it stood at the end of 2019.


The third quarter showed record quarterly increases in services (14.2%), production (14.3%) and construction output 41.7%. The largest sector, services, received its positive contribution from wholesale and retail trade, which were up 30.7%. Reopened schools and universities, restaurants, pubs, and bars, also made a material contribution to the expansion. Anecdotal evidence suggests that government initiatives such as the “Eat Out To Help Out” scheme played an instrumental part in increased activity.  


Household consumption rebounded by 18.3% in the three-months to September. However, this missed analyst expectations of 17.4%, with consumption some 12.8% below the level in the fourth quarter of 2019.


Beaufort Investment CEO Derrick Dunne said, “Third-quarter GDP figures show good progress in reversing the hit the economy took in the first lockdown, but this trend is unlikely to continue, with a second lockdown in full swing.”


Monthly data showed a steady decline in activity over the reporting period. The GDP growth rate in September fell to 1.1% – a fifth consecutive monthly increase – versus August’s strong 2.1% and was significantly slower than July’s 6.4% rate.


Staggered lockdowns across the home nations coincided with evidence that activity has softened considerably as new restrictions on social interaction were close to levels last observed at the start if July.[EC1] 


Concerns for the usually busy period leading up to Christmas have grown. David Mackie of JP Morgan Research said, “In the UK, the second lockdown is scheduled to end on 2 December, to be followed by regional measures if needed. If the lags are similar to the first wave, then new infections and hospitalisations should have clearly peaked across the region by early December. Given the huge amount of economic and social activity that takes place in December, it is critical to know whether the current timetables will be kept to.”


The UK’s Treasury has extended its jobs furlough scheme until the end of March 2021 in an attempt to mitigate the negative effects of the second lockdown. The move has lifted sentiment and provided some optimism for a revival in activity into next year. Another positive is the news of potential vaccine availability by the end of December.


Citibank’s Benjamin Nabarro posited that 2021 was looking better while [EC2] cautioning that the long road is back. “Recent news flow on both testing and potential vaccines suggests the outlook for 2021 may be improving. However, we still expect a very weak start to 2021, with Brexit also likely to weigh. We now expect GDP to fall by 11.3% in 2020, before recovering 3.2% in 2021 and 5.1% in 2022.”


Little in today’s report is likely to move the dial for Bank of England rate-setters. Policymakers have already reduced the benchmark bank rate to a historic low of 0.10% and expanded the quantitative easing programme by an additional GBP150bln, taking the total stock of government bond purchases to GBP875bln.


In its statement, the bank acknowledged that the outlook for the economy remained unusually uncertain. “It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. It also depends on the responses of households, businesses and financial markets to these developments.”